IT glitch firm agrees rescue deal
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Knight Capital has been handed a lifeline after it agreed a $400m (£257m) rescue deal with a group of investors, enabling it to continue trading.
An IT glitch on Wednesday caused its trading to go haywire, losing it $440m.
Knight Capital is a major market-maker on the New York Stock Exchange (NYSE), creating a market for particular shares if investors want to buy or sell.
The rescuers are reported to include Blackstone Group and TD Ameritrade.
The Chicago-based market-maker Getco and financial services companies Stifel Nicolas, Jefferies Group and Stephens Inc are also reported to be involved.
Knight Capital has agreed to sell the consortium of investors, the names of whom Knight did not disclose, convertible securities in exchange for the $400 cash injection.
These will be converted into 267m shares of the company, Knight said in its filing to the US Securities and Exchange Commission.
This means that the consortium is expected to end up owning just over 70% of Knight Capital, diluting existing shareholders' stakes.
Shares fell 33% to $2.70 in premarket trading from a $4.05 close on Friday after the announcement. Less than three weeks ago Knight shares traded for more than $12 a share.Keeping clients
However, despite the rescue deal enabling Knight Capital to resume operations, it will still have to persuade clients to return to it.
TD Ameritrade and Scottrade said they would be returning their business to Knight, but others such as Vanguard said they were not yet ready to trade with Knight again.
TD Ameritrade is the biggest volume brokerage in the US, carrying out much of its futures, foreign exchange and bond trading through Knight Capital's systems, which means it would be very inconvenient for it if Knight were to stop trading.
Knight Capital said that a faulty upgrade to its trading software had caused numerous erroneous trades to be sent.
It is thought that the firm racked up its loss, equivalent to half of the value of its equity, in the space of just a few minutes.
The software glitch is thought to have affected Knight's trading algorithms, which are computer programmes that automatically and speedily send out buy and sell orders based on market data and client requests.